February 13, 2017
Indonesia’s proposed palm oil moratorium combined with buyers’ No Deforestation, No Peat, No Exploitation (NDPE) policies impacts industry growth potential. Within current concession areas, the moratorium adds regulatory risks to market access risks for companies that proceed with developing forests or peatland. Outside these existing concession areas, there is a material loophole in the proposed moratorium for land classified as ‘convertible production forest’ (HPK). However, this loophole is essentially closed by stranded land risks caused by NDPE policies.

Key Findings

West Kalimantan has 2.2 million ha of land suitable land for palm oil development outside of its current licensed palm oil concessions. But, because of the moratorium and NDPE policies, at most 2.6 percent of this land is available for future viable oil palm concessions.

Likely responses to NDPE market innovations and the moratorium are an increase in smallholder investments, industry consolidation and vertical integration.

Productivity improvements and international expansion are less likely to materialize in the short term.

After 25 years of aggressive palm oil development, which saw concession areas grow from 1 million ha to 21 million ha, the Government of Indonesia is now taking steps to limit further landbank expansion. These measures come at the same time that compliance with No Deforestation, No Peat, No Exploitation (NDPE) is increasingly becoming a condition for market access and that public monitoring capacities are rapidly improving. These trends increase pressures within the Indonesian palm oil industry to seek other growth strategies.

Buyers’ NDPE palm oil demands have led to material stranded land. Stranded forest and peat lands exist within concessions that cannot be developed without violating NDPE policies and Government of Indonesia regulations. The proposed palm oil moratorium further limits landbank growth outside land for which concessions have already been granted.

President Jokowi’s announcements should be seen in the context of Indonesia’s efforts to address their multi-decade fire and haze crises and to implement the objectives of the Paris Agreement, which it ratified in October 2016.

The draft palm oil moratorium lists the following objectives:

Development of the downstream palm oil industry

Development of smallholder palm oil farmers

Environmental protection

Reducing Emissions from Deforestation and forest Degradation (REDD+)

President Jokowi aims to increase productivity on existing plantations through replanting and through smallholder capacity building. He wants to simultaneously reduce further geographical expansion of the palm oil industry. President Jokowi stated:

“Current plantations are enough, as long as the seeds are proper, it is possible to double productivity.”